Lack of direction in currency markets

October 25, 2016 03:39 PM

Currency markets were unnaturally calm during trading on Tuesday with major currency pairs lacking direction as anxious traders awaited the next big macro release. Stock markets meandered between losses and gains as the conflicting combination of rising oil prices and heightened expectations of a U.S. interest rate kept investors on edge. Trading on the Asian markets was mixed, buoyed by upbeat reports on manufacturing from the United States, but later dragged lower following the weak growth figures from South Korea. In Europe, shares received a welcome boost from the rising German business sentiment and this positivity could rollover into Wall Street.

 

Currency spotlight: EUR/USD 

The EUR/USD currency pair received a royal pummelling last week following comments from Mario Draghi which swiftly extinguished the heated taper talk rumours. A strengthening Dollar amid growing US rate hike hopes fuelled the sharp selloff on the EURUSD taking prices below 1.0900. This pair remains fundamentally bearish with the expected monetary policy divergence between the ECB and Fed enticing bears to install repeated rounds of selling. From a technical standpoint, previous support at 1.0900 could transform into a dynamic resistance which encourages a steeper decline towards 1.0800 and potentially lower.

 

Commodity spotlight: WTI Oil

WTI crude was exposed to sharp losses on Monday with prices slipping towards $49.66 per barrel after comments from Iraq’s oil minister on an exemption from the output curbs rekindled fears over the pending OPEC deal concluding unsuccessfully. Oil's decline was complimented with a resurgent Dollar amid rising rate hike expectations which provided a foundation for bears to keep prices capped. With oil sensitivity rife ahead of the looming meeting on Nov. 30, further erratic movements may be expected as investors ponder the likelihood of a potential freeze deal. The mounting uncertainty and anxiety could have the ability to drag WTI oil prices back below $50 before the meeting day.

About the Author

Lukman Otunuga is an FXTM research analyst